Personal Finance

What Does A Certified Financial Planner Do

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 12 minute read

I’m not. Before my wife pushed me to start using a family calendar, I tended to fly by the seat of my trousers. I’ll be the first to acknowledge that my lack of financial planning extended to other areas of my life as well. 

Though I’ve always been careful with my money, I’ve never been very good at using it strategically. My whole approach to budgeting and saving consisted of spending less than I took in and putting the difference into savings and retirement accounts that offered tax benefits.

My wife and I saw a dramatic improvement once we started working with a CERTIFIED FINANCIAL PLANNERTM (CFP®). Since we combined our funds, we now feel like we’re in charge of our financial destiny.

If you aren’t certain you need a CFP® expert, here are some reasons why you should think about hiring one. Follow the #LetsMakeAPlan social media campaign, visit the CFP® Board’s Facebook page, and learn how a CFP® professional can assist you by visiting LetsMakeAPlan.org before we continue.

Who Are CFP® Professionals, Exactly?

A Certified Financial Planner (CFP®) must adhere to rigorous professional and ethical requirements in order to maintain its certification.

The CFP® Board states that CFP® professionals are qualified to help you design a comprehensive strategy to meet your short- and long-term financial goals from preparing for retirement to saving for education.

Each candidate for CFP® certification must have a minimum of 4,000 hours of relevant work experience in financial planning, in addition to passing exams in four core areas. Professionals in the CFP® industry must achieve these exacting standards.

1. Education

To become a CFP® professional, one has to hold or earn a bachelor’s degree from an approved university. Candidates for the Certified Financial Planner® (CFP®) certification are not required to have a bachelor’s degree before taking the CFP® test, but they must receive one within five years of passing the exam.

All candidates for the Certified Financial Planner® designation are required to take five college-level courses at a school recognized by the CFP® Board. 

Coursework includes such varied fare as:

  • General principles of financial planning
  • Tax planning
  • Estate planning
  • Risk management
  • Financial plan development

2. Examination

The Certified Financial Planner (CFP) Board Exam is a comprehensive, all-day test designed to assess candidates’ knowledge of and aptitude for financial planning in general and their ability to apply that knowledge to specific scenarios.

Exams administered by FINRA for securities licensing and by states for life, health, and property/casualty insurance are shorter and easier than the CFP® Board Exam. The average percentage of test takers who pass the CFP® Board exam is between 55% and 60%.

3. Experience

CFP® exam candidates are expected to have worked in the financial planning industry for a minimum of four thousand hours. 

You may accomplish this in two ways:

  • Normal Procedure. Candidates for the Standard Pathway are expected to accumulate the equivalent of 6,000 hours of professional experience.
  • Methodology of Apprenticeship. Candidates for the Apprenticeship Pathway must complete the equivalent of four thousand hours of recorded financial planning experience under the close guidance of a CFP® practitioner.

Aspiring CFP® professionals are prepared for a wide range of circumstances by any route.

4. Ethics

It is a requirement of the Certified Financial Planner Board of Standards that all CFP® professionals uphold the fiduciary standard and always put the needs of their clients first. 

Additionally, certificates are held to the highest standards of professional conduct as outlined in the CFP® Board’s “Standards of Professional Conduct” manual.

A CFP® Certification Application, which includes a comprehensive criminal and professional background check, must be completed before a candidate can be accepted. Until this requirement is met, candidates may not publicly identify themselves as Certified Financial Planners.

How a CFP® Professional Can Help You

With their extensive education and experience, CFP® experts are ready to help clients at any point in their lives, regardless of how complex their personal finances are or how lofty their goals may be.

When to Consult a CFP® Expert

Anytime is a good moment to find a CFP® expert. Even if you think you’re on pace to accomplish your financial objectives, you could benefit from proactive planning or consulting with a Certified Financial PlannerTM expert for a second view or a new perspective.

Another reason to consult a CFP® expert is if you experience any of the following:

  • The End of a Marriage. In any case, a couple’s financial situation stands to shift significantly upon marriage or divorce. If your soon-to-be husband, for example, has a lot of student loan debt, you may want to figure out a way to reduce its influence on your budget. If you’re worried about the effects of going back to being a single breadwinner after your marriage ends, it’s important to make plans for ensuring that you can still achieve your financial objectives.
  • The shift in the Number of Children. Getting ready for the arrival of a new baby, or adopting a child? Responsibility often comes along with success. From the never-ending cost of diapers to saving for college, a child presents a number of financial obstacles that may be mitigated with careful planning.
  • There has been a status change at work. Even if you have extensive resources, the loss of a job or downsizing can have an immediate impact on your ability to make ends meet. Likewise, achievements like landing your first full-time job after graduation can bring their own set of difficulties, or at the very least, additional layers of complexity.
  • Obtaining Unexpected Money (Expected or Not). This is a prime motivator for contacting a Certified Financial PlannerTM expert in an effort to avoid the pitfalls associated with unexpected income. Inheritance from a loved one who has passed away is the most typical form of windfall, but court judgments and lottery wins also need careful preparation.
  • Getting by Despite a Huge Financial Obstacle. There is a wide range of manifestations of monetary stress. You may benefit from an in-depth, honest consultation with a CFP® professional if you’re dealing with anything that puts a serious strain on your finances, such as a prolonged illness in the family, gambling addiction or compulsive buying disorder, an accumulation of high-interest credit card debt or student loans, or anything else like that. You should seek the advice of other experts if you have developed bad financial habits or are experiencing health problems.
  • Destiny-altering events necessitate forward thinking. A Certified Financial PlannerTM expert can guide you in the right direction if you are unsure of where, to begin with, your financial planning or if you feel you need assistance constructing your plan. Common ones include saving for retirement, a down payment on a home, and helping your children pay for college.
  • Making a Business Move. Building a business from scratch is an enormous time commitment that can have far-reaching financial consequences. While they may not be able to provide you with advice on the nuts and bolts of running a business, CFP® professionals can help you get your personal finances in order so you can focus on growing your business. Investing in an established company presents its own unique challenges while selling such a company might result in a sizable profit.
  • Becoming Distressed by Money Problems. If you’re feeling stressed about meeting your financial responsibilities or dealing with your current financial situation, it may be time to talk to a Certified Financial PlannerTM expert.

Of course, this is by no means an entire list. Remember that a CFP® certificate can be consulted at any time; an emergency is not required. You may start planning for the future at any time.

The Process of Financial Planning

According to the CFP® Board’s Consumer Guide to Financial Planning, the financial planning process consists of six distinct phases. The length of time you and your CFP® professional work together on this will depend on the agreement you come to.

  1. Sort Out Your Methods of Collaboration. At the outset, you and your CFP® professional will meet for an introductory session during which they will discuss topics like your roles and expectations, the services they will provide, and practical matters like payment. A few, or all, of the questions below, should be asked at this meeting.
  2. Collect Data and Determine Objectives. You and your CFP® expert will talk about your financial state, your goals, and the amount of risk you are willing to take during your initial appointment and any subsequent meetings. Before having this discussion, you will likely be asked to present financial documents.
  3. Evaluation and Planning. The next step in working with a CFP® professional to achieve your financial goals is to have that professional assess your current financial situation in light of your stated objectives. This phase entails a comprehensive evaluation of your family’s financial resources, including income, expenses, savings, investments, and insurance policies; as well as its assets and debts.
  4. Make some suggestions. The study performed by your CFP® expert will result in recommendations that can be implemented to complete your financial plan. Financial planning, insurance, estate preparation, and even debt management are all covered in these suggestions. The expert should explain their thought process for each suggestion, solicit your opinion, and take it into account when making any changes. You are under no obligation to adhere to either the original or updated advice; in fact, you are under no obligation to act upon them at all.
  5. Just Do It Already! After your plan is complete, you can retain your CFP® expert to assist you in putting its suggestions into action if you so want. They will play a central role in the actual execution in some circumstances, such as investment management. For the rest, they’ll work with outside vendors that specialize in areas like estate planning and insurance policy underwriting.
  6. Look over the development. At this stage, you and your CFP® expert will continue to work closely together for as long as you continue to work together. If you want to know who is accountable for what in your plan’s execution, you’ll need to talk to your Certified Financial PlannerTM expert. In the event that you no longer choose to work together, you are at liberty to end the agreement and take command of the situation.

How to Approach Potential Financial Planners

Hold off on becoming serious with someone just yet. You should meet with or schedule a call with each candidate once you’ve cut your list of potential financial planners down to a manageable number. 

Inquires to put to them include:

  • What’s Your CFP® Status? Even though it may seem obvious, not everyone who advertises themselves as a “financial planner” has earned the CFP® designation. It’s important to make sure right from the bat that you’ll be working with someone who is certified to use the CFP® logo.
  • Which Services and Goods Do You Provide? Unless they have the proper credentials, financial planners cannot lawfully provide their services or sell any financial products to their clients. Verify that your CFP® professional possesses the necessary credentials, such as a broker-dealer license, before forming a planning relationship with them.
  • Please Describe Your Approach to Financial Planning. The question is significant, yet there is no right or wrong response. It’s important to choose a CFP® expert whose demeanor and approach puts you at ease and whose financial philosophy is congruent with your own.
  • Who are your typical patrons, if I may ask? You didn’t say how many customers you have. You should be sure that the planners you’re considering are used to dealing with people like yourself. This might not be a deal-breaker if your financial position is not particularly complicated. Complex clients, including company owners and high-net-worth families, need to know that their CFP® expert can manage all of their concerns. Also, even if they say they can, planners who are already stretched too thin may not be able to give your project the time and attention it deserves. If one-on-one service is highly valued, it’s best to choose a planner who can devote adequate time to your needs.
  • How Much (and How) Do You Usually Charge? Find out in advance what your budget is for planning services and, more critically, how your planner bills for their time. If the case is very complicated, some CFP® professionals may quote a flat “project” cost. While some have set hourly rates. If you hire a CFP® professional for ongoing services in which they take direct responsibility for managing your investments, they may do so for a fee based on a percentage of your assets. It is essential that your expectations on this front be made clear.
  • Can You Please Tell Me If You Have Any Potential Conflicts Of Interest? Even though a planner is sworn to operate in your best interest, you should still ask them about any conflicts of interest that might compromise their capacity to do so. For instance, find out whether they have any mutually advantageous connections with brokerages and insurance firms. Be wary of someone who is cagey or evasive in describing their personal connections.
  • Has There Ever Been a Time When You Were Censured or Sanctioned in Your Field? Another thing you’ll want to know upfront is whether or not you’re comfortable dealing with a planner who has been approved in the past. Inquire about any legal action taken against them for possibly illegal acts and any professional disciplinary action taken for violations of ethical or procedural norms.
  • Creating a formal agreement, will you? Finally, everything should be documented in writing. You may lessen the chance of disagreements and misunderstandings in the future by having a formal contract that specifies the services to be provided by your planner and elaborates on the duties of both parties.

Benefits of Working With a CFP® Professional

In what ways might enlist the help of a Certified Financial PlannerTM professional benefit you?

1. They’ll Never Judge You

Imagine your CFP® professional in the role of a mentor or teammate. Rather than passing judgment or reprimanding you, they should be assisting you in developing and implementing a strategy for your financial well-being. 

You shouldn’t be afraid to deal with a CFP® expert because you’re frightened they’ll demand major changes to your lifestyle or pick apart every dollar you spend. In terms of money, it’s likely that your plan won’t keep you where you are now, but it also won’t make you a monk.

2. They Offer Coaching and Encouragement

Do not confuse “coach” with “scold.” As many customers of planners can attest, the planning process is often only the beginning. Putting out a complete financial plan is a lot of work that has to be done over time, so having a skilled expert on your side is invaluable. 

My wife and I are very appreciative of the efforts put into developing our plan, but we are much more appreciative of having someone to whom we can turn for advice.

3. They are the best planners available.

When it comes to developing and guiding your personal financial plan, nobody beats the expertise of your Certified Financial PlannerTM professional. The CFP® Board’s stringent education and experience standards guarantee that only the most qualified, dedicated applicants gain the right to use the CFP® mark.

4. They are Subjected to Strict Professional and Ethical Standards

To put your mind at ease, CFP® experts take an oath to act in your best interest only. Even while they may have business links to entities like insurance providers, their fiduciary duty requires them to prioritize the interests of their customers above everything else.

Firsthand, we witnessed this when our CFP® expert helped us through the scary and baffling process of applying for disability insurance. Although it was not a quick or pleasant experience, we never felt like we were being given skewed information. 

The result was probably better for us than if we had tried to do it ourselves, which, if we’re being really honest, we might not have followed through on.

5. They can assist you in adjusting to a sudden change in your life.

Planning customers frequently consult with experts before and during major life transitions, both those that were anticipated and those that were unanticipated. 

A Certified Financial PlannerTM expert is someone you can turn to for honest counsel and thorough direction, whether you’re expecting a child, getting ready for a divorce, or wondering what to do with an inheritance.

The CFP® Board Is Concerned With Consumer Protection

The CFP® Board offers both a Consumer Guide to Financial Planning and a separate Consumer Guide to Financial Self-Defense. Get familiar with both manuals before starting your search for a CFP® professional.

The CFP® Board uses a trust, but verify strategy to ensure the safety of its clients. Clients may rest easy knowing they’re dealing with a real expert when they see the CFP® logo, but they should still take precautions to protect their funds and personal information and only engage with other clients who share this credential.

Bottom Line

Don’t ever lose sight of the fact that you and your loved ones are the primary beneficiaries of your financial strategy. To help you confidently implement your plan and prepare for an unpredictable future, your CFP® expert is sworn to operate in your best interest and is devoted to giving unbiased advice and guidance. 

However, they cannot coerce you into doing anything against your will or seize complete control of your money. You shouldn’t really want it to happen.

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